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Is The Race Gap A Skills Gap?

September 22, 1996

Economic Trends

IS THE RACE GAP A SKILLS GAP?

Why wages of blacks are lagging

After narrowing for decades, the gap between wages earned by blacks and by whites has widened since 1980--a development that has led some observers to charge that progress in reducing job discrimination has stalled. In a controversial new study in the current issue of The Journal of Political Economy, however, Derek A. Neal of the University of Chicago and William R. Johnson of the University of Virginia find that much of the remaining black-white wage difference may reflect a gap in basic skills.

The two economists analyzed survey data covering 3,000 American youths from 1980 to 1991. In 1980, the youths, then 16 to 17 years old, took the Armed Forces Qualification Test, a widely used measure of basic math and verbal skills. By comparing the test scores with the wages earned by the group in 1990 and 1991, Neal and Johnson were able to estimate how the skills that the teenagers had brought to the labor market had affected subsequent wages.

The upshot of their statistical analysis: While they found evidence of continuing discrimination, poorer skills as reflected in the test scores explained "roughly two-thirds of the racial wage gap among young men and all of the gap for young women." In other words, at least among young adults, large skill gaps between blacks and whites appear to be a key determinant of wage differences.

Not everyone agrees. Research by economists William M. Rodgers of the College of William & Mary and William Spriggs of the Joint Economic Committee finds that the Armed Forces test is a racially biased predictor of wages and that young blacks still face widespread job discrimination.

There's no denying the high value placed upon skills in today's economy, however, or that many young blacks (and not a few whites) entering the labor market suffer from skill deficiencies. Significantly, Neal and Johnson find that the black-white skill gap shrinks appreciably when differences in home and school environments are factored into the equation.

At the least, their study underscores the importance of helping black children overcome the obstacles they face in acquiring productive skills.BY GENE KORETZReturn to top

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SOCIAL SECURITY MAY GET A BREAK

Looking ahead to the next century, economists have been hoping that a trend toward later retirement will ease the burden on working Americans when the baby boomers become senior citizens. Unfortunately, however, labor force participation by those 55 and older has been declining for decades. Unless that trend reverses significantly, there could be hard times ahead for both U.S. workers and retirees.

In a recent study focusing on the state of Wisconsin, demographers John R. Besl and Balkrishna D. Kale find reason for hope: the projected fast-rising educational achievement of older workers as highly educated baby boomers enter their golden years. At every age level, the more educated a person is, the more likely he or she is to be in the labor force. In 1993, for example, labor force participation for college grads 55 years and up was about 56%, compared with just 31% for high school grads.

By the year 2020, the two demographers project that the share of high school dropouts in Wisconsin's 55-plus group will fall to 15% from 40% in 1990. Those with at least some college will climb from around 25% to nearly 50%. The bottom line is that the changing educational composition of the state's older population alone will raise its projected 55-plus labor force by about 7%.

The same principle holds throughout the U.S. The nation's gray-haired ranks will be a lot better educated in another 25 years. And such folk tend to earn more, stay on the job longer, and derive more satisfaction from using their skills.BY GENE KORETZReturn to top